New Risk-Retention Plan Offers Banks Relief

WASHINGTON — Federal regulators on Wednesday proposed aligning new securitization requirements with a recent Consumer Financial Protection Bureau underwriting rule in a move likely to please banks and housing advocates.

The Federal Deposit Insurance Corp. board issued a second proposal designed to implement a Dodd-Frank Act provision requiring 5% credit risk retention by securitizers. As expected, the agency's new plan would eliminate down payments as a requirement for being a "qualified residential mortgage" — which is exempt from risk retention requirements — and calibrates the QRM standard with the recent CFPB rule related to "qualified mortgages."

The new proposal — which is being released jointly with five other agencies — is a victory for mortgage bankers and housing advocates that had fiercely criticized the first proposal, released in 2011, that limited QRM loans to those with a 20% down payment and borrowers with strong credit histories. They argued that approach could limit credit for many worthy borrowers.

But the latest proposal also asked commenters to weigh in on an alternative plan that would go in the other direction and essentially raise the down payment requirement to 30%. The alternative approach would limit QRM status to mortgages with a maximum 70% loan-to-value ratio that also comply with the key components of the CFPB underwriting rule.

The release of the proposal will be followed by a 60-day comment period. The other agencies issuing it are the Federal Reserve Board, Office of the Comptroller of the Currency, Department of Housing and Urban Development, Federal Housing Finance Agency and Securities and Exchange Commission.